Pinterest Q1 Revenue Exceeds Expectations, Goldman Sachs Raises Target Price to $28

Overview

Goldman Sachs released its review of Pinterest's Q1 2026 earnings, identifying several positive themes: revenue outperformance, healthy user growth, AI-driven product innovation effectiveness, and increased shareholder returns. Despite Q2 margin guidance showing sequential decline (due to AI investments and marketing spend), the firm maintains its Buy rating and raises the 12-month target price from $22 to $28, reflecting optimism about the medium-term growth trajectory.

Core views

Revenue: Q1 total revenue of $1.008 billion surpassed Goldman Sachs' expectations by 4%, primarily driven by strong performance in U.S. SMB and mid-market advertising, lower-funnel ad targeting (performance-driven ads), and key industry verticals like financial services. Although large U.S. retail advertisers remained a headwind, robust performance from other advertiser segments offset this negative impact. Q2 revenue guidance of $1.14 billion (vs. prior expectation of $1.10 billion) indicates continued growth momentum. User Engagement: Monthly active users reached 631 million, up 11% YoY, with U.S. & Canada at 106 million (+4%), Europe at 159 million (+7%), and Rest of World at 367 million (+15%). Specific user groups like Gen-Z and use cases such as platform queries/AI search continue to drive engagement, a trend consistent over recent years. Profitability & Expenses: Q1 adjusted EBITDA was $207 million, 15% above expectations, with a 20.5% margin. However, Q2 adjusted EBITDA guidance of $272 million (vs. prior expectation of $292 million) suggests sequential margin decline, primarily due to increased AI-related investments, marketing strategy adjustments, and TVScientific acquisition integration costs. Q1 stock-based compensation expenses were higher than expected and remain elevated. Shareholder Returns: Q1 share repurchases of approximately $1.95 billion, with about $2 billion remaining under the current authorization, demonstrate management's significantly enhanced commitment to capital returns.

Analysis framework

Valuation Methodology: Goldman Sachs employs a blended valuation approach, with the $28 target price based on equal weighting of two components: (1) EV/Sales multiple of 3.0x (previously 2.5x) applied to forward 12-month +1 year projections; (2) Adjusted DCF using EV/GAAP EBITDA multiple of 18.5x (previously 16.0x) applied to forward 12-month +4 year projections, discounted over 3 years. The discount rate of 12% is based on CAPM, incorporating a 3% risk-free rate, approximately 1.3 average beta, and 7% equity risk premium. Growth Assumptions: Long-term growth opportunities are anchored around key strategic and product initiatives (shoppable content, direct response/lower-funnel ad budgets, partnerships to scale monetization), with expectations for mid-teens% compound revenue growth and margin expansion over multiple years. Forecast Adjustments: 2026 revenue forecast raised from $4.70 billion to $4.81 billion, adjusted EBITDA slightly adjusted from $1.37 billion to $1.39 billion, but GAAP EPS lowered from $0.65 to $0.40, reflecting one-time restructuring charges (approximately $47 million in Q1, $10 million each in Q2 and Q3).

Methodology notes

• Valuation MethodologyEV/EBITDA valuation

  EV/GAAP EBITDA Multiple Valuation

  Enterprise value to earnings before interest, taxes, depreciation, and amortization ratio, used to assess overall company valuation. Goldman Sachs uses 18.5x EV/EBITDA for forward 4-year projections, reflecting Pinterest's average historical multiple since 2022.

• Valuation MethodologyPS valuation

  EV/Sales Multiple Valuation

  Enterprise value to sales ratio, suitable for high-growth companies with unstable profitability. The report uses 3.0x EV/Sales, corresponding to approximately 0.24x EV/Sales-to-growth ratio, consistent with the previous 0.2-0.25x range.

• Quantitative/Factor/Portfolio TheoryCAPM Capital Asset Pricing

  CAPM Discount Rate Calculation

  Capital Asset Pricing Model used to calculate equity discount rate. The 12% discount rate comprises three components: 3% risk-free rate (based on normalized 10-year rate) + approximately 1.3 average beta × 7% equity risk premium, helping readers understand the risk-adjusted valuation logic.

• Company Fundamentals & Financial Framework

  Lower-Funnel Ad Targeting Analysis

  The 'funnel' concept in advertising, where lower-funnel refers to conversion-focused ad objectives (e.g., direct purchases, registrations) that are easier to measure ROI compared to upper-funnel brand advertising. The report highlights Pinterest's shift toward lower-funnel ads as a key driver of revenue outperformance.

• Industry/Industrial Analysis Framework

  Advertiser Diversification Strategy

  Expanding advertiser base (e.g., SMBs, mid-market advertisers, diverse industry verticals) to reduce reliance on any single advertiser group. The report emphasizes this as a core component of Pinterest's medium-term growth strategy.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Pinterest Inc.(PINS.US)

  Direct coverage target, benefiting from advertiser diversification, AI-driven product innovation, healthy user growth

  Strengths

  High user engagement (e.g., Gen-Z), effective lower-funnel ad transition, increased shareholder returns (significant buybacks)

  Weaknesses

  Large retail advertisers remain a headwind, Q2 margin guidance shows sequential decline, elevated stock-based compensation expenses

  Comparison

  Report does not provide horizontal comparisons with peer stocks

  Risks

  Macroeconomic pressures, unstable MAU growth, international monetization deviations from expectations, execution risks in e-commerce, increased regulatory scrutiny

Key data

• Q1'26 Total Revenue$1.008 billion4% above expectations, up 18% YoY
• Q1'26 Adjusted EBITDA$207 million15% above expectations, 20.5% margin
• Q1'26 Monthly Active Users631 millionUp 11% YoY, 2% QoQ
• Q1'26 Adjusted EPS$0.278% above expectations
• Q2'26 Revenue Guidance$1.14 billionPrior expectation $1.10 billion
• Q2'26 Adjusted EBITDA Guidance$272 millionPrior expectation $292 million, sequential margin decline
• Q1 Share RepurchasesApproximately $1.95 billionAbout $2 billion remaining under authorization
• Target Price$28Raised from $22, implying ~34% upside
• 2026 Revenue Forecast$4.81 billionRaised from $4.70 billion
• 2026 Adjusted EBITDA Forecast$1.39 billionSlightly adjusted from $1.37 billion

Impact & implications

For Pinterest, this earnings report validates initial success in strategic transformation: advertiser diversification reduces reliance on large retail advertisers, AI-driven product innovation improves engagement and cost efficiency, and lower-funnel ad shifts enhance monetization quality. However, near-term margin pressure (due to AI investments, marketing spend, acquisition integration) suggests investors should monitor the balance between medium-term investments and outcomes. For the industry, Pinterest's performance reflects structural changes in social media advertising: performance-driven ad budgets show relative resilience compared to brand advertising, SMB advertiser segments become key growth drivers, and AI applications in content recommendations and ad matching are emerging as competitive differentiators. Goldman Sachs believes that if the company continues executing strategic initiatives (Performance+ products, advertiser base expansion, shoppable content, direct response ad budgets, partnerships to scale monetization), mid-teens% compound revenue growth and margin expansion are achievable over multiple years.

Risks

• Persistent or worsening current macroeconomic pressures affecting future quarter ad spend growth/budgets
• Monthly active user growth fails to stabilize or continues post-pandemic decline
• International monetization deviates from expectations due to competition, macro/geopolitical risks, or international sales team execution
• Shopping/full-funnel e-commerce opportunities face challenges from competition, advertiser/user adoption gaps, or internal execution risks
• Increased regulatory scrutiny on user data/privacy for all media/e-commerce platforms
• Impact from global macroeconomic environment and growth stock investor risk appetite fluctuations

What to watch

• Medium-term revenue growth trajectory, especially whether marketing repositioning and strategic execution can offset macro or competitive headwinds
• Continued traction in AI-driven product innovation (engagement metrics, cost efficiency, Performance+ ad campaign adoption rates)
• Progress in advertiser base diversification (SMBs, mid-market advertisers, diverse industry verticals)
• Margin trend changes, balancing key investment priorities with revenue scaling
• International sales team execution and international monetization progress